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Modi wave all set to grip D-St again, but Fed, valuations could play spoiler

NEW DELHI: What does the massive win for the BJP in the UP elections suggest?

Well, going by what the Consulting Editor at ETNow, Swaminathan Aiyar said, “PM Modi is here for 10 years.”

Many Dalal Street analysts remained mixed over whether the better-than-expected win for the BJP reflected voters’ appreciation of the government’s demonetisation move in November that temporarily halted economic activity in the country. But they largely believe new all-time highs for the indices are around the corner.

The market could see a sharp gapup opening on Tuesday and the indices might touch new highs soon. However, some analysts said one should not jump the gun as rich valuations of stocks and momentum traders might be ready on the sidelines to book profit.

Market veteran Ambreesh Baliga said he would not be surprised if the Nifty50 jumps 150-200 points in Tuesday’s trade itself, as he believes nobody had expected the BJP to come out with a landslide victory in UP.

That means a new high. But will the euphoria hold?

“Assembly elections and similar events do not have a lasting impact on the market for more than 4-5 sessions. We have seen that during the Brexit vote, Trump elections and Bihar election. Looming Fed hike and earnings would be key events, which will decide the market direction,” Baliga told ETMarkets.com.

“The market is already overstretched. As the index moves 200 points, it will be further in the overbought zone. It will attract profit booking by traders, who have added positions in the past four-five weeks in anticipation of a BJP win,” he said.

Sanjiv Bhasin, EVP for Markets & Corporate Affairs at IIFL, said new high for the indices is definitely on the cards next week.

“Once we hit that, eyes would turn to what will the Fed do on March 15 and what is the language it speaks. The only worry is that bond yields are rising in the US and that could be a little bit of a negative in the short term,” Bhasin said.

Others said the BJP’s win could be a dress rehearsal for 2019 elections. “A five-year term, he is going to win again,” said Aiyar.

“I think the big thing is that Modi is all set for a re-election in 2019. This is, so to speak, a dress rehearsal and we are going to get to the final thing two years from now. Two years in politics is a long time, things can go wrong. But I would say on the current kind of mood, the current kind of state of the other parties, this is a fantastic victory for Modi in UP. I thought he would win big, but this is even bigger,” Aiyar said.

Baliga expects the Modi government to keep coming up with reforms and surprise the markets with unconventional moves.

“Modi has achieved a golden mean by emphasising on economic reforms with equity-for-all as it’s fulcrum. On the one hand he has focused on structural macro-economic reforms like fiscal prudence, inflation control & government-led infrastructure development in roads & railways and on the other hand he has given equal importance to pro-poor transformational economic policies that touch the lives of the marginalised & downtrodden cutting across castes and thereby broadened his party’s support base through schemes like Mudra loans, LPG cylinders & housing-for-all,” said
Ajay Bodke, CEO & Chief Portfolio Manager -PMS at PrabhudasLilladher.

“The market would be rejoiced with this outcome and scale a new high ably supported by a torrent of domestic liquidity. Though valuations remain expensive, the market would pin it’s hope on recovery of as-yet tepid corporate earnings over the next few quarters and the passage of GST,” Bodke said.

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